How to Save Time by Centralizing Bill Payments Methods

January 18, 2023

Executives are constantly on the lookout on finding ways to reduce admin time and improve financial management — specially in these days of our economy, where a cost-conscious mindset has become ever more important. One strategy that we are well acquainted with is centralizing bill payments.

So what's the essence? Business owners that we work together with usually juggle a number of payment method that can be used to pay the business' bills, such as SEPA credit transfers (the most common payment rail), SEPA direct debits, debit cards, credit cards, checks, and other electronic payment systems.

In this article, we will explore the benefits of centralizing bill payments, provide case studies on how to successfully implement systems for this, and discuss the technology that enables businesses to centralize their bill payments.

Common Types of Business Payments Methods

In Germany and most EU countries, some of the most common payment rails include:

SEPA credit transfers: This is the household bank transfer that moves funds between bank accounts in Europe.
SEPA direct debits: Commonly used for rent payments, direct debits allow businesses to automatically collect payments from their customers' bank accounts.
Debit cards: A debit card is always pre-funded, linked to a bank account, and bears no risk.
Credit cards: A credit line, redeemable at point-of-sale, and issued by a credit institution. A credit card is more expensive, and bears risk and interest.
Checks: A written and signed instrument that instructs a bank to pay an amount of money to a specified recipient.
Electronic payment systems: Payment platforms, mobile payment apps, and e-wallets. They can vary in terms of availability, fees, and security measures.

A deep dive on SEPA Direct Debit

SEPA direct debit can be separated into two subsections.

SEPA Direct Debit Core is the most commonly used type of SEPA Direct Debit, and it allows businesses to collect payments from customers who have provided their consent to be charged in this way. This payment type is typically used for recurring payments, such as subscriptions, rent, or installment payments.

SEPA Direct Debit B2B, on the other hand, is a payment type that is specifically designed for business-to-business transactions. It allows businesses to collect payments from other businesses, without the need for individual consent from the payer. This payment type is typically used for one-time payments or for transactions between businesses that have a pre-existing relationship.

Both SEPA Direct Debit Core and SEPA Direct Debit B2B are secure and efficient payment methods that are used by businesses to simplify collections and administrative overhead. However, there are differences between the two payment types, including consent requirements the range of eligible transactions.

Consent

SEPA Direct Debit Core requires the customer to provide explicit consent to the seller before a direct debit can be initiated. The payer must actively agree that the payee can collect money from their account. In contrast, SEPA Direct Debit B2B does not require this explicit consent. Instead, the customer's bank is required to execute the collection unless the customer has specifically instructed the bank to reject it.

Eligible transactions

SEPA Direct Debit Core can be used for all types of consumer transactions, such rent payments, donations, or utility bills. SEPA Direct Debit B2B, on the other hand, is commonly used for recurring orders or for the settlement of large, one-time business transactions.

If you are interested in more of this, head over to our friends at Numeral, who provide in-depth explanations of the SEPA payment methods in their blog.

Benefits of Centralizing Bill Payments

Centralizing bill payments can bring a number of benefits to businesses, including time savings, improved accuracy, and better financial management.

Time Savings

One of the main advantages of centralizing bill payments is the potential for time savings. The “Invoice Automation Study” by The Hackett Group (2019) found that organizations can reduce the time to process an invoice byup to 80% using bill paymentes automation. By consolidating all workflows a single platform, businesses save time and money, and improve their liquid working capital.

How to calculate time and cost savings from using a single payments platform

One way to calculate time savings is by looking at the administrative overhead when managing multiple payment methods. For example, if you currently use online banking, credit cards, and direct debit among your payment methods, you will require additional staff (or at least input from multiple stakeholders) to manage these payments, such as processing the payments, reconciling accounts, and tracking outstanding payments to avoid late payments. By consolidating all of these payments onto a single platform, you reduce the number of process steps — and time spent — that you need to manage payments, leading to more efficient operations and cost savings.

Another way to calculate savings is by looking at the fees associated with using multiple payment methods. For example, several payment methods incur fees such as processing credit card payments, issuing checks, or processing direct debits. By switching to a centralized payment platform, you reduce or even eliminate these fees.

Finally, time savings can be calculated by looking at the time and resources required to reconcile your payments. For example, a business with multiple payment methods will invest significant time and effort to track and reconcile its payments into their financial reporting and controlling, resulting in lost productivity. Centralized payment platforms streamline their payment process and reduce the time and resources required to manage its payments.

Improved Accuracy, Reduced Risk of Errors and Fraud

In addition to time savings, a central payments platform for company bills is also crucial to improve workflow accuracy and reduce the risk of errors and fraud. This starts with the simple fact, that having all actionable data in one place removes cognitive friction forced context switching. Human error is real and common: A company's finance department that still currently uses segregated payment methods will see some payments made late or lost in the shuffle, leading to costly mistakes.

Financial admins, controllers, or approvers can much more easily track and manage their total spending, and be more confident that their payments are being processed accurately and securely, with all bill payments in one single platform. The risk thereby greatly reduces as all payments are processed and tracked in a central location.

Better Financial Decision Making

Finally, central payments for bills has material impacts on the leadership's financial decision making. Consolidating bill payments methods is one discipline within the sound and proper managing of a company's treasury. As a result, executives have all the insights at their fingertips to make more informed decisions about how to allocate their resources. Better decisions lead to improved operations and an overall better financial performance.

So, how would executives or financial controllers use a centralized bill payments platform to improve their decision making? Well, for one they could utilise the specific drill-downs into departments or business units that are making the most payments and to determine whether the spend of funds to those teams is appropriate. You might be surprised, how many department leaders sneak in that little large expense just before the new year to use up the set budget (fun money, right?). If the controlling executives, such as a CFO or CEO see that a particular department or business unit makes large volumes of payments, they should consider if additional resources are needed in that area, or if a cost saving opportunity can be implemented.

Alternatively, executives can also use a centralized bill payment platform to see which suppliers receive the most payments and can make decisions about how to manage those relationships. If a particular supplier is consistently receiving a high volume of payments, leadership may decide to negotiate a bulk discount or to switch to a cheaper supplier.

Companies That Have Successfully Centralized Bill Payments

Many companies have successfully implemented centralized bill payment systems, leading to significant cost savings. Let's briefly touch on three successful case studies with companies, that we have worked together with:

Softtech, which reduced its payment processing costs by 25% after implementing a centralized bill payment platform.
Warthammer, a large European ecommerce shop, which saved over €50,000 annually by centralizing its payment process and reducing the need for manual intervention.
ShopX, which streamlined all payment workflows and improved its cash flow management.

Note: We have changed the companies’ names to maintain anonymity

These companies used a variety of strategies and approaches to improve or introduce their bill payments. For example, Softtech, a software consulting company with 60 employees moved over to an integrated payments platform with business accounts, debt cards, and approval workflows. The new platform allowed their employees to easily submit and track their payment requests, and a dedicated team of decision makers to review and approve these requests. Payment processing costs alone reduced by 25%.

Warthammer, a large ecommerce company with 110 FTE and annual turnover of €15 million took a similar approach, but focused on integrating its various payment systems and platforms into a single, unified system. The company started to benefit from the simpler managing and tracking of its payments, and found old supplier contracts that were long overdue to negotiate. The took advantage of bulk payment discounts offered by new vendors and realised more than €50,000 savings annually.

ShopX, a franchise with several clothing stores doubled down on improving the efficiency of its bill payment workflow. By nature they had a complex supply chain and procurement to manage. With the increased focus on streamlining their bill payments, they started using automated payment reminders, as well as implementing a system for automatically scheduling and processing payments.

All companies faced challenges before setting up their new integrated payment systems, but overcame them through careful planning and collaboration across departments. Softtech worked closely with its finance team to ensure that the new system met all of its requirements, and Warthammer trained its employees on the use of the new system to minimize disruption.

The Role of Technology in Centralizing Bill Payments

When looking to consolidate your company's payment methods, you will find that there as various forms of technology available that all offer to help businesses centralize their bill payments, such as payment platforms, accounting software, invoice management systems, and finance operations platforms. All of them have certain specialties, benefits, but also shortcomings:

Focused payment platforms promise simple payments to vendors, suppliers, and other parties. These platforms typically offer a range of payment methods, including credit card, bank transfer, and e-check, and often provide features such as automatic payment scheduling and reminders. However, they often lack integrations, workflow support, roles and permissions, and meaningful insights to actually optimise cash flows.
Accounting software is commonly used to manage financial records and generate reports. Most major players, such as DATEV, Xero, or Quickbooks can be integrated with payment platforms to provide a comprehensive view of a company's financial transactions. Additionally, lists such as the unpaid positions can be helpful to track overdue payments. The shortcomings of these platforms are in the complexity of their user interface and a lack of financial products to actually execute the payments. In most cases, businesses are dependent on their legacy bank again.
Invoice management systems help businesses to manage and track their invoices and payment requests. These systems typically allow businesses to create, send, and receive invoices, as well as to track the status of payments. These systems typically fare well as workflow solution, but miss the support of financial products, such as business accounts or debit cards, and integrate poorly with spend insights and controlling functionalities.
Finance operations platforms are a more comprehensive solution, combining the functionality of payment platforms, accounting software, and invoice management systems. These platforms provide a single, unified system for managing all aspects of a company's financial operations, including payments, invoices, and cash flow.

Bottom line is, that all these technology platforms move the needle to save time in the back office: Payment platforms can automatically schedule and process payments, reducing the need for manual intervention. Invoice management systems can help businesses to track and manage their payment requests, ensuring that they are paid on time. And finance operations platforms can provide a comprehensive view of a company's financial transactions, enabling better cash flow management.

Centralizing Payments Methods Into One Platform

In conclusion, centralizing bill payments brings significant time reductions to businesses. They realise the most benefits when opting for finance operations platforms that bring payments, business accounts, invoices, and cash flow together into one software. Examples of companies that have successfully implemented centralized bill payment systems, such as Softtech, Warthammer, and ShopX, used a range of strategies and technologies, such as payment platforms, accounting software, and invoice management systems, to achieve their cost savings.

The technology that offers particularly strong value for money is the finance operations platform. These platforms combine the financial services, such as business accounts and card payments, with the workflow automation for finance teams, and the handover into accounting systems, providing a single, unified system for managing all aspects of a company's financial operations.

Automating Bill Payments with Friday Finance

Friday Finance takes the effort and manual tasks away from managing finances. One part of Friday Finance is a bill payment system, build on the powerful Friday Finance business accounts, which makes it possible to pay all bills from in one place.

By automating bill payments, Friday Finance makes it easier for businesses to keep track of their accounts payable and avoid missing important payments. With the platform's fully integrated bill pay solution, modern businesses in Europe pay their bills instantly or schedule them for a later date, giving them greater control over their finances.

In addition, the finance operations platform allows businesses to see exactly who they need to pay and when they can pay them, making it easier to plan and manage their cash flow. By automating bill payments, Friday Finance helps businesses save time and reduce the risk of late payment fees and other financial penalties.

Alex Müller

VP Growth at Friday Finance